Post on 10-Jul-2020
08 July 2020 Sector Update
Cement
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Prices, retail sales hold up despite COVID Despite the ongoing COVID situation, cement demand recovered MoM in
June, driven by strong traction in retail sales (semi-urban/rural areas) while
non-trade sales continued to decline. Our channel checks suggest sales in
north/central/east regions printed flattish to marginal growth. Even in the
south and west India, the volume decline rate moderated to ~20-30% YoY in
June vs ~40% in May. These factors imply that 1QFY21 sales would decline
~20% YoY in the north and ~40% in the south. Cement prices mostly held up
in June, bolstering 1Q realization YoY across the south (+11%), north (+6%),
and central (+2%) India. West and east prices are down ~1% and 2% YoY
respectively. We believe that falling energy costs could further cushion the
impact of dwindling demand on profitability.
Resilient demand in the northern half of India: As per our channel checks,
cement sales in the north/central/east regions fell 20-25% YoY in 1QFY21. It
implies that demand was fairly strong (flattish to marginal growth) in the
month of June! Lower impact of Covid in rural/semi urban areas along with
better availability of incoming labourers led to healthy demand in these
regions. However, the fall in 1Q sales in the south/west regions was much
sharper at ~45%/30% YoY on overall weak demand in the south and larger
non-trade share in Maharashtra.
Prices cool off marginally MoM in Jun’20; strong gains QoQ: On the
significant price increase taken in April/May, there was a marginal
correction MoM across all regions. Trade prices in north/central/east regions
cooled off 4/2/2% MoM in June 2020. East prices remained flat MoM. Prices
in south moderated 7% MoM (after a spike in April/May). As prices
remained firm across all the three months, 1QFY21 trade prices are up
6/5/9/4/26% QoQ.
North/central prices remain buoyant YoY, south flares up: North and
central prices further firmed up 6% and 2% YoY respectively on healthy
retail demand. South prices buoyed the most (+11% YoY) as companies
focused on remunerative pricing amidst a sharp volume decline. Despite the
recent hikes, east/west prices are expected to be down 2/1% YoY. Weak YoY
pricing in Maharashtra drags west realization down. In the east, pricing is
higher YoY in the NE region and in Chhattisgarh (+7% YoY).
Falling energy cost: Petcoke prices (both domestic and imported) cooled off
4% QoQ, leading to a 20-30% YoY decline. Imported coal prices fell sharply
during 1Q: South African coal was down 25%/11% QoQ/YoY, and
Indonesian coal fell 10%/15% QoQ/YoY. Despite sharp slump in crude
prices, the Indian government’s sharp tax hikes in June elevated diesel
prices by 1/1% YoY/QoQ.
Trade cement price trend Rs/bag Jun-20 MoM (%) YoY (%) 1QFY21 QoQ (%) YoY (%)
North 348 (4.1) 1.5 358 6.4 6.2
Central 361 (2.4) 0.6 366 5.2 2.2
East 341 (2.4) (0.4) 343 8.5 (2.4)
West 346 (0.4) (0.4) 345 4.4 (0.5)
South 390 (6.8) 7.8 411 26.1 11.1
Pan India 357 (3.4) 1.9 364 10.0 3.4
Source: HSIE Research
COMPANY RATING TP (Rs.)
UltraTech BUY 4,720
Shree Cement REDUCE 17,900
Ambuja Cem BUY 210
ACC BUY 1,440
Ramco Cem ADD 685
Dalmia Bharat BUY 930
JK Cement BUY 1,425
Star Cement BUY 115
JK Lakshmi BUY 370
Orient Cement BUY 85
Deccan Cem BUY 370
Rajesh Ravi
rajesh.ravi@hdfcsec.com
+91-22-6171-7352
Saurabh Dugar
saurabh.dugar@hdfcsec.com
+91-22-6171-7353
Page | 2
Region-wise price trends
Trade prices to surge 6/6% QoQ/YoY in the north in 1QFY21
Even the central region’s prices to firm up 5/2% QoQ/YoY during 1QFY21
Source: HSIE Research Source: HSIE Research
Despite a sharp 9% QoQ recovery, we expect it to fall 2% YoY in the region
Continued price recovery in the past six months to drive flat realization YoY in 1Q
Source: HSIE Research Source: HSIE Research
Despite ~Rs 40/bag fall in Jun from Apr levels, prices firmed up +26/+11% QoQ/YoY (AP/T major gainer)
Thus, the average pan India price firmed up +10/3% QoQ/YoY in 1Q
Source: HSIE Research Source: HSIE Research
Cement: Sector Update
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Cement: Sector Update
Coal/petcoke price trending downwards
Owing to the global slowdown for fuel demand, prices for coal/petcoke continue to
fall and are currently hovering close to a four-year low. Imported petcoke prices in
1QFY21 are down 30% YoY and domestic petcoke price (from RIL Ltd) is down ~20%
YoY. Imported coal prices are also down 10-15% YoY in 1QFY21.
Global petcoke prices on a continuous slide since August 2018
Even domestic petcoke (RIL supplied) prices at multi-year low
Source: Industry, HSIE Research Source: Industry, HSIE Research
South African coal (6000 NAR FOB) price has fallen to 3.5 year low on weak demand
Indonesian thermal coal (5800 GAR CNF) has fallen sharply in the past three months to four year low
Source: Industry, HSIE Research Source: Industry, HSIE Research
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Page | 4
Cement: Sector Update
Diesel prices trend While crude prices fell 32%/47% YoY in 1QFY21, diesel prices in India were up
1%/1% QoQ/YoY, driven by tax hikes by Indian government– mainly in Jun 2020.
Brent crude price fell 46/51% QoQ/YoY on global
demand slump
Despite crude price slump, tax hikes by government
drove up diesel prices in June-20
Source: Bloomberg, HSIE Research Source: Industry, HSIE Research
Peer Set Valuations for our coverage universe
Company Mcap
(Rs bn)
CMP
(Rs/sh) Reco TP
EV/EBITDA EV/MT (Rs bn) Net D:E (x) RoE (%)
FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
UltraTech
Cement 1,059 3,857 BUY 4,720 13.6 15.2 12.4 11.08 10.59 9.96 0.4 0.3 0.2 10.4 7.6 9.5
Shree Cement 796 22,850 REDUCE 17,900 21.3 24.8 20.3 18.18 17.73 16.29 (0.3) (0.3) (0.3) 13.9 7.9 9.7
Ambuja Cements 383 193 BUY 210 10.2 11.4 9.7 7.40 6.99 6.98 (0.7) (0.7) (0.7) 6.8 5.3 6.0
ACC 246 1,311 BUY 1,440 8.3 11.3 9.3 6.28 6.43 6.49 (0.4) (0.4) (0.3) 11.6 8.4 10.6
Ramco Cements 155 657 ADD 685 16.2 16.2 11.8 9.94 9.50 8.49 0.6 0.6 0.3 12.8 10.7 12.2
Dalmia Bharat 139 720 BUY 930 8.5 11.1 8.1 6.84 6.00 4.73 0.4 0.4 0.3 2.1 (1.5) 1.3
JK Cement 113 1,466 BUY 1,425 11.7 13.1 10.6 8.79 8.32 8.46 0.9 0.9 0.8 17.4 11.3 15.1
Star Cement 37 89 BUY 115 8.8 8.9 7.1 9.67 8.17 7.17 (0.1) (0.1) (0.1) 15.4 13.7 16.1
JK Lakshmi 33 282 BUY 370 6.4 8.3 7.1 3.70 3.69 3.89 0.6 0.5 0.6 16.2 9.0 11.4
Orient Cement 14.3 70 BUY 85 6.8 7.6 6.3 3.27 3.07 3.08 1.1 0.9 0.8 8.0 4.6 9.6
Deccan Cements 4.1 296 BUY 370 5.1 4.8 4.8 1.78 1.58 2.31 (0.0) (0.1) 0.2 10.1 7.7 12.3
Source: Company, HSIE Research, For ACC and Ambuja, the financial year is CY19/CY20E/21E resp
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(Rs/Litre) Avg Diesel price (daily)
Trailing 3-month Avg price
Page | 5
Cement: Sector Update
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Institutional Equities
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